#HFSC

16 02, 2024

DAILY021624

2024-02-16T15:55:14-05:00February 16th, 2024|2- Daily Briefing|

Barr Points to Tough New Fed Supervisory Strategy

FRB Vice Chair Barr today updated FRB efforts to enhance bank supervision since its SVB post mortem revealed severe failings (see Client Report REFORM221).  Various internal efforts are under way, but the talk indicates no specific new initiatives beyond far greater focus on near-term CRE risk with an eye in particular to adequate provisioning.  The System is now improving supervisory rigor, coordination, and escalation protocols, with Mr. Barr also laying out how Fed supervision has become significantly more rigorous in the last year.

CFPB Report Continues Credit Card Attack

Buttressing its controversial credit-card late-fee proposal (see FSM Report CREDITCARD36), the CFPB today issued a report finding that the 25 largest credit card issuers charged interest rates eight to ten percentage points higher than small-and-medium-sized banks and credit unions. The report states that higher rates among large issuers persist across credit scores, with large issuers also more likely to charge annual fees.

House GOP Tries to Speed Bank M&A

Following up a letter sent to the federal banking agencies in October, HFSC Financial Institutions Subcommittee Chair Barr (R-KY) and Rep. Fitzgerald (R-WI) today introduced the Bank Failure Prevention Act, a bill to require the Federal Reserve to act on bank merger applications within ninety days.  The bill would also require the central bank to acknowledge the application’s completion within thirty days, with approval automatically granted for any application not serviced within the ninety-day window.

Daily021624.pdf

15 02, 2024

LIQUIDITY34

2024-02-15T15:07:26-05:00February 15th, 2024|5- Client Report|

Congress Contemplates Fed Emergency-Liquidity Power, Discount-Window Use

Today’s HFSC Financial Institutions hearing on emergency liquidity featured much discussion of reform, but few indications of any action Congress will take to advance it apart from support for pending agency efforts to enhance discount-window readiness. However, GOP criticism of the Bank Term Funding Program combined with witness support for its end makes clear the Fed’s political challenge should it reverse course and retain the facility in light of NYCB’s challenges and the potential for broader regional-bank stress.  Republicans including Subcommittee Chairman Barr (R-KY) were skeptical of the Home Loan Banks’ role as lenders to banks in duress; Democrats countered with strong support for the System as a boon to community banks.  Rep. Barr also contemplates some form of legislation to prevent the Fed from crafting new emergency-liquidity programs without prior Congressional approval, with Rep. Luetkemeyer (R-MO) noting his longstanding plan to give the FDIC authority to invoke a transaction-account guarantee regardless of amount without the need for prior Congressional approval.

LIQUIDITY34.pdf

14 02, 2024

DAILY021424

2024-02-14T17:29:47-05:00February 14th, 2024|2- Daily Briefing|

Global Regulators Propose Ways to Limit Variation-Margining Stress

As promised, CPMI and IOSCO have issued a discussion paper on CCP and clearing-member variation-margin practices.  The global agencies propose eight principles to enhance the likelihood that margins will be covered in stress situations, a continuing challenge based on a recent IMF paper finding that up to a third of EU active-derivatives users would not be able to meet variation-margin calls under stress and would thus turn to liquidating MMF shares or other assets in a manner likely to amplify market stress.

HFSC Deploys Power of the Purse to Pressure FinCEN

As anticipated, today’s HFSC hearing with Treasury and FinCEN was highly partisan, with Republicans continuing to blast FinCEN for what they call SAR surveillance and now threatening to block any increased funding for FinCEN until it also improves beneficial-ownership reporting to the GOP’s liking. Rep. Loudermilk (R-GA) also criticized FinCEN for failing to release the statutorily-mandated BSA review and the $10,000 threshold review.

Barr Sees Banking System as Strong, Liquid

In remarks today, FRB Vice Chair Barr emphasized that, despite pockets of risk and CRE worries, the banking system is sound and he sees no liquidity-risk concerns across the financial system.  Still, March 2023 taught hard lessons, he said, with banks since taking significant steps to reduce HTM holdings and enhance liquidity resilience.

Daily021424.pdf

13 02, 2024

DAILY021324

2024-02-13T17:42:19-05:00February 13th, 2024|2- Daily Briefing|

Durbin Tries Another Approach to Advance Card-Fee Limits

After trying various ways to bring his credit-card fee bill to the floor, Senate Judiciary Committee Chair and Majority Leader Durbin (D-IL) has scheduled a hearing on this controversial bipartisan measure (see FSM Report INTERCHANGE10).

FinCEN Reaches SEC Agreement to Bring Investment Advisers Under AML/CFT Standards

As it has repeatedly promised, FinCEN today revised a 2015 proposal and issued a new one to subject investment advisers to AML and CFT requirements similar to, but still less restrictive than, those that have long governed banks.

HFSC Rallies to Crypto AML/CFT Defense

The HFSC staff memo on Thursday’s Digital-Assets Subcommittee hearing makes it clear that cryptoasset entities will be given a strong platform from which to resist calls in the Senate to subject cryptoasset transactions to AML and sanctions law.

Gensler Reinforces AI Concerns

In remarks today, SEC Chair Gensler acknowledged AI’s benefits in a manner consistent with the President’s executive order (see Client Report AI3), but then launched into a sharp critique of its risks in line with the agency’s pending rule in this arena.

Bowman Takes Fed Accountability, Transparency to Task

In an essay today, FRB Gov. Bowman emphasized that regulatory accountability does not undermine the independence also essential to a sound, innovative banking system.

Gensler Turns to Bank/Hedge-Fund Interconnection

In addition to his speech on AI earlier today, SEC Chair Gensler today engaged in a wide-ranging discussion of key financial policy questions.

Daily021324.pdf

6 02, 2024

FSOC30

2024-02-06T15:01:20-05:00February 6th, 2024|5- Client Report|

Yellen Ducks Capital Question, Further Threatening Finalization

As anticipated, today’s HFSC hearing with Treasury Secretary and FSOC Chair Yellen showcased sharp Republican criticism of the Council’s nonbank designation authority (see FSM Report SIFI36), with Chairman McHenry (R-NC) and Financial Institutions Subcommittee Chairman Barr (R-KY) citing the guidance as yet another example of regulatory politicization, calling FSOC a “rogue” and “roving” regulator.  Digital asset regulatory gaps were a top GOP concern, with Chairman McHenry also joined today by Reps. Hill (R-AR), Johnson (R-SD), and Thompson (R-PA) in sending a letter to Ms. Yellen requesting much greater attention to SEC and CFTC collaboration on digital asset oversight.  The hearing also continued to raise doubts about the viability of the agencies’ capital proposal (see FSM Report CAPITAL230), with Ms. Yellen repeatedly refusing to endorse it and emphasizing that the rule’s final form is the purview of the banking agencies.  Democratic opposition to the proposal was most starkly captured by Rep. Scott (D-GA), who said not only that it would be economically “terrible,” but that the majority of Committee members shared this opinion.  Ranking Member Waters (D-CA) strongly countered this view, but Democratic support today was muted.  Rep. Waters was also joined last night by Reps. Green (D-TX), Lynch (D-MA), Cleaver (D-MO), and Foster (D-IL) in sending a letter to Chairman McHenry requesting a hearing examining what they argue are racial disparities in mortgage approval rates at Navy Federal Credit Union.

FSOC30.pdf

5 02, 2024

DAILY020524

2024-02-05T16:54:06-05:00February 5th, 2024|2- Daily Briefing|

Bowman Opposes Tech Self-Regulation, Highlights Emerging Risks

In remarks Friday on the future of banking, FRB Gov. Bowman joined Acting Comptroller Hsu in expressing concern over supervisory and governance complacency, especially when it comes to interest-rate and liquidity risk.  The speech picks up on Karen Petrou’s memo last week, pointing to the way in which regulators now appear focused principally on new rules, not emerging risks including those from fraud-renewed threats and third-party vendors.  Ms. Bowman thus urges greater accountability for banks based on third-party actions not only to enhance risk management, but also to reduce migration risk.

House GOP Expands Attack on Fed Work With Global Bodies

Continuing previous attacks on Federal Reserve Banks and federal banking agencies’ work with global entities, HFSC Chair McHenry (R-NC) and Financial Institutions Subcommittee Chair Barr (R-KY) sent letters today to the San Francisco and New York Reserve Banks disputing what they describe as undue cooperation with the Network for Greening the Financial System (NGFS) and Bank for International Settlements (BIS).

Daily020524.pdf

2 02, 2024

Al020524

2024-02-02T16:12:41-05:00February 2nd, 2024|3- This Week|

Systemic Show-Down

As seems always the case, the Treasury Secretary’s appearance before Congress this week reporting on FSOC’s work will feature a lot more partisan wrangling than policy insight.  We will nonetheless glean what we can, with snippets possibly of greater import than usual because Democrats are pushing FSOC harder than ever to be more than the “book-report club” described by CFPB Director Chopra (see Client Report CONSUMER54).

Al020524.pdf

31 01, 2024

DAILY013124

2024-01-31T16:57:15-05:00January 31st, 2024|2- Daily Briefing|

Senate Banking Turns to AI’s Impact on Housing Finance

 

Today’s lightly-attended Senate Banking Subcommittee hearing on AI and Housing focused principally on AI governance issues including accountability, model explainability, transparency, and bias.  Sen. Warnock (D-GA) called for action on S. 3692, legislation to prohibit use of algorithmic systems to coordinate – and it is believed thus inflate – rental prices or reduce supply.  Although Subcommittee Chairwoman Smith (D-MN) lauded AI for its potential to boost the housing supply, she and other Democrats raised serious concerns that AI reinforces biases in lending decisions.

Democrats Remain Dubious About the Capital Proposal

Today’s Financial Institutions Subcommittee hearing on the capital rules made it still more clear that more than a few Democrats share at least some GOP concerns.  Chair Barr (R-KY) reiterated points he has frequently made about the poor analytics behind the proposal; Full Committee Ranking Member Waters (D-CA) and Rep. Green (D-TX) were unequivocal in their support.  Other Democrats raised concerns many had previously expressed in comment letters, with Rep. Sherman (D-CA) pointing to problems with the proposal’s impact on capital markets and its lack of credit for private mortgage insurance and Rep. Beatty (D-OH) highlighting concerns with small business credit availability.

Daily013124.pdf

30 01, 2024

DAILY013024

2024-01-30T17:13:26-05:00January 30th, 2024|2- Daily Briefing|

FinCEN Estimates High Bank-BOI Reporting Costs

FinCEN via the Federal Register today requested comment on the estimated total annual reporting and recordkeeping burden for new Access Rule beneficial ownership information (BOI) reporting requirements (see FSM Report AML135).

Brown Puts More Pressure on Powell

Following Sen. Warren’s rate-cut demands and affordable housing concerns yesterday, Senate Banking Committee Chairman Brown (D-OH) today sent a letter to FRB Chair Powell also calling for less restrictive monetary policy on grounds that elevated rates negatively impact home affordability, limit the housing supply, restrict small business growth, and dampen wages.

HFSC Targets China Sanctions, Outbound Investments

Today’s HFSC National Security Subcommittee Hearing focused on China sanctions and restrictions on outbound investments.

GOP Demands Retraction of CFPB Tech-Payment Proposal

Reiterating their opposition to the Bureau’s pending digital-payment rule (see FSM Report PAYMENT27), HFSC Chairman McHenry (R-NC) alongside Digital Assets Subcommittee Chairman Hill (R-AR) and Rep. Flood (R-NE) sent a letter today urging the CFPB to reopen and extend the comment period and reconsider finalizing the rule as proposed.

Daily013024.pdf

26 01, 2024

Al012624

2024-01-26T16:10:55-05:00January 26th, 2024|3- This Week|

Here We Go Again

Late last week, Bloomberg reported that the same kind of interest-bearing stablecoin products that wreaked havoc in 2023 and even some that purport to offer checking accounts are proliferating again with kudzu’s tenacity.  Offshore trading volumes for stablecoins grew 28 percent to almost touch $1 trillion at the end of last year, a move said to be bolstered by larger reserve assets at the largest stablecoin issuers.  The problem is that other than the case-by-case enforcement actions that drove this market offshore, there is still no U.S. law or rule to protect investors and, as stablecoins head over the $1 trillion hump, also the financial system.  Will that change this year?

Al012924.pdf

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